By, uh, mixing 3D terrain and 2D sprites. That sample seems to use extremely low-res texturing on basic cube or deformed cube geometry for the ground. For the sprites, just use vertical-axis-aligned billboards, and perform a calculation to determine what sprite set to display based on a comparison of the unit's facing direction and the direction from the unit to the camera.

Yeah, the actual images used are all 2D, only the game engine side is 3D. It's quite a lot like Disgaea 1.

I want to help design a "sandpark" MMO. Optional interactive story with quests and deeply characterized NPCs, plus sandbox elements like player-craftable housing and lots of other crafting. If you are starting a design of this type, please PM me. I also love pet-breeding games.

Yeah, it looks quite 2d to me, and the way the graphics are I don't even think it was pre-rendered 3d either, though I could be wrong on that one. It looks cool though.

It's from 1998, it predates the use of cel-shading style rendering, so I don't think that at that time it would have been possible to produce this particular style of sprites by pre-rendering 3D models. Also the proportions (arm length and stuff) aren't consistent across frames of animation, which wouldn't happen if they started with a 3D model. But currently one could produce almost indistinguishable sprites by making 3D models instead of 2D drawings.

I want to help design a "sandpark" MMO. Optional interactive story with quests and deeply characterized NPCs, plus sandbox elements like player-craftable housing and lots of other crafting. If you are starting a design of this type, please PM me. I also love pet-breeding games.

it looks like basic mario kart 1 graphics to me. Which means you need the mode 7 tilemapped floor, and then sit the sprites on top of it for the characters, its actually pretty groovy I can see why you are interested...